My New Year’s Resolution: Beef Up My Emergency Fund

I was laid off abruptly in April 2011 from a job that I thought was solid and found myself in a situation I had never been in before. I was worried I hadn’t saved for a rainy day and all I had was my RRSP that I was unable to dip into without paying a huge penalty.

After a few months of soul searching (which I recommend to anyone that has been laid off), I decided the right thing to do was to get back to what I was best at, financial journalism. I also realized that once I started making money I would have to put more away to plan for the next rainy day that came into my life.

Like a religious promise, I’ve been putting 10% of my after tax income away into a long-term savings account, this is not my retirement saving or my holiday fund. This is money that I will be able to rely on if my financial situation goes south again. I realized this year that although I have set myself up very well for later in life, I own investment properties that will be paid off when I turn 55 and I have a sizable amount in my RRSP, but I have nothing for the emergency situations that can happen at any time.

My New Year’s promise is to increase the amount of after tax income I put away from 10% to 15%.

The World Has Changed a lot in 2011

If I learned anything from this year, it’s that anything is possible. Just look at how the world has changed in the last 365 days.

The debt problems in Europe are worse. Whereas last year we thought it was a few countries dealing with their debt crisis now the future of the Euro is in peril.

The Occupy Movements proved a large proportion of people around the globe are frustrated with the economy and their own financial situations.

The Bank of Canada did not budge the interest rate all year, scared out of its mind that it would bring Canada’s economy to a standstill. Subsequently our household debt continues to rise and hit new record levels.

But the most surprising is that for the first time in history the debt rating of what everyone thought was the world’s most powerful economy the United States of America, was downgraded and remains lower even today.

My Promise for 2012

Here is my take away for 2011 and what I want to do different in 2012. Nothing is forever, always plan for when times may not be as good as they are right now. Save more money and if you’re in debt pay it off before you do anything else. Don’t live your life a slave to your debt payments. Also take a good holistic look at what you spend your money on annually. Add up how much you spent on clothes, going out for dinner and vacations this year and see if that number makes you nervous.

If you’re spending more than 40% of your after tax income to service your debt you need to take a hard look at how to get those numbers lower. For example if you make $3000 a month but your minimum variable rate mortgage payment is $1,200 a month you’re over extending yourself and are vulnerable to financial problems when interest rates start to rise.

Ask yourself if you could live with one less car, or are you wasting money by throwing away food that goes bad in the fridge or do you really need to go the spa every second week?

I don’t believe saving money means cutting out all the joy in your life, but it means putting the way we spend money into perspective.

I’m an optimist and I believe we all have the ability to make a change to save more and pay off more debt. Make 2012 the year you get yourself on the track to financial freedom and by this time next year you will see how it’s paying off.